U.S., EUROPE EYE UNPRECEDENTED PENALTY FOR IRAN

Fox News on February 15, 2012, published an AP report on possible new penalty against Iran. The United States and Europe are considering unprecedented punishment against Iran that could immediately cripple the country’s financial lifeline. Excerpts below:

The Obama administration wants Iran evicted from SWIFT, an independent financial clearinghouse that is crucial to the country’s overseas oil sales. That would leapfrog the current slow-pressure campaign. The last-resort financial effort suggests the U.S. and Europe are grasping for ways to show immediate results because economic sanctions have so far failed to force Iran back to nuclear talks.

New sanctions could undercut the reputation of SWIFT, a banking hub used by virtually every nation and corporation around the world. The organization’s full name is the Society for Worldwide Interbank Financial Telecommunications.

In the financial world, the United States can’t order SWIFT to kick Iran out. But it has leverage in that it can punish the Brussels-based organization’s board of directors. Talks are focused now on having Europe make the first move.

Short of total expulsion, Washington and representatives of several European nations are in talks over ways to restrict Iran’s use of the banking consortium to collect oil profits.

More than 40 Iranian banks and institutions use SWIFT to process financial transactions, and losing access to that flow of international funds could badly damage the Islamic republic’s economy. It would also probably hurt average Iranians more than the welter of existing banking sanctions already in place since prices for household goods would rise while the value of Iranian currency would drop.

Lawyers for SWIFT are holding meetings in Washington. People familiar with the talks say a compromise is possible in which SWIFT would voluntarily bar or restrict Iranian transfers.

But if SWIFT fails to act on its own, the U.S. expects Europe to require it to terminate services for Iranian banks, another Obama administration official said.

David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence, delivered that message to European Union officials in Brussels earlier this month, said the official, who was not authorized to speak publicly and thus spoke only on the condition of anonymity.

SWIFT handles cross-border payments for more than 10,000 financial institutions and corporations in 210 countries. It lets users exchange financial information securely and reliably, thereby lowering costs and reducing risk. It operates on trust and neutrality — SWIFT accepts nearly all comers and does not judge the merits of the transactions passing through its secure message system. Its managers generally brush off investigators and enforcement agencies, telling them to take up suspected wrongdoing directly with nations or corporations.

Established in 1973, the essential but little-known hub is overseen by major central banks, including the U.S. Federal Reserve and the European Central Bank.
Lawyers familiar with SWIFT’s operations said it could bar processing actions with any Iranian party or third parties representing Iran, though that would open the consortium to complaints of favoritism or political influence.

Proponents of blocking Iran from SWIFT say the financial network’s own bylaws require that its services not be used to facilitate illegal activities and allow it to prohibit users that are subject to sanctions.

While the U.S. and Europe debate options, some American lawmakers are trying to increase pressure on SWIFT. The Senate Banking Committee passed a measure earlier this month directing the White House to press SWIFT to block Iranian entities.

A tougher House bill would compel the administration to sanction SWIFT unless it stopped providing services to Iran.

The pending legislation has caught the attention of officials at SWIFT. The financial network’s general counsel and other advisers requested a meeting with congressional lawmakers and staff next week, Senate aides said.

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